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1. Session Number: Session 5a (Parallel)
Time: Thursday, September 24, 16:00-17:30
Paper Prepared for the Special IARIW-SAIM Conference on
“Measuring the Informal Economy in Developing Countries”
Kathmandu, Nepal, September 23-26, 2009
Informal Sector and Informal Workers in India
Ajaya Kumar Naik, Jawaharlal Nehru University, New Delhi
This paper is posted on the following website: http://www.iariw.org

2. 1
Informal Sector and Informal Workers in India
Ajaya Kumar Naik
Introduction
It is well known that a major part of the workforce in India and other developing
countries work in informal sector. Informal sector has become an increasingly popular
subject of study, not just in economics, but also in sociology and anthropology. Keith
Hart was the first person to introduce the term „Informal Sector‟. He introduced it
while making a presentation on “Informal income opportunities and urban
employment in Ghana” in Institute of Development Studies (IDS) in September 1971
at a conference co-organized by Rita Cruise O‟Brien and Richard Jolly on urban
employment in Africa months before International Labour Organisation (ILO)
employment mission to Kenya came with its report “Employment Incomes and
Equality” (jolly, 2006). Hart distinguished formal and informal (both legitimate and
illegitimate) income opportunities on the basis of whether the activity entailed wage
or self-employment (Hart, 1973).Therefore the concept of informal sector used by
Hart was limited to small self-employed individual workers. Although Hart‟s concept
of informal sector had some limitations, the introduction of this concept made it
possible to incorporate activities that were previously ignored in theoretical models of
development and in national economic accounts (Swaminathan, 1991).
The term informal sector came in a broader sense in the academic literature only after
the visit of an International Labour Organization (ILO) employment mission to Kenya
in 1972. The ILO then evolved a conceptual framework and guidelines for the
collection of statistics on informal sector and presented the same in the Fifteenth
International Conference of Labour Statisticians (ICLS) held in February, 1993 in the
form of a resolution. The resolution was then endorsed by the United Nations
Statistical Commission (UNSC) and made a part of the “System of National Account
(SNA) 1993” by the United Nations Economic and Social Council.
Though the term „informal sector‟ gained currency after ILO evolved a conceptual
framework and guidelines for the collection of statistics on informal sector, there has
not been any single definition of informal/unorganised sector in India. Informal sector
is a matter of discussion among the academics, policy makers etc. from the beginning
as a large chunk of workforce employed in this sector. Different criteria are used to
identify the informal sector but non of them was universally applicable in different
empirical situations (papola, 1981). A study by Mitra (2001) based on fourth
economic census of India took the criteria of own account enterprises and
employment establishments employing one to nine workers to identify the informal
sector. The different organizations of India like National Sample Survey Organisation
(NSSO), Directorate General of Employment and Training (DGET) etc used varying
definitions of informal/unorganised sector depending on the specific requirements of
each organisation. Keeping in view the absence of a uniform definition of
informal/unorganised sector in India the National Commission for Enterprises in the
Unorganised Sector (NCEUS) set-up a Task Force to review the existing definitions

Ph.D. Scholar in Jawaharlal Nehru University, New Delhi, India. Former Consultant in the National
Commission for Enterprises in the Unorganised Sector (NCEUS).

3. 2
and formulated harmonized definitions of informal/unorganised sector employment
and informal/unorganised employment.
Scope and Objective
The objective of the paper is to study the informal sector employment and Informal
employment scenario across sectors, states, industry group etc in India using the new
definition of informal sector and informal worker proposed by National Commission
for Enterprises in the Unorganised Sector (NCEUS) and to show that the new
definition is more suitable to study the informal sector.
Data Source
The study is based on secondary data collected by the National Sample Survey
Organisation (NSSO) for 1999-2000 and 2004-05 through quinquennial surveys on
“Employment- Unemployment”.
Existing Definitions of Informal Sector
International Definition
As per SNA (1993), the informal sector consists of units engaged in the production of
goods or services with the primary objective of generating employment and income to
the persons concerned. These units typically operate at a low level of organization,
with little or no division between labour and capital as factors of production and on a
small scale. Labour relations - where they exist - are based mostly on casual
employment, kinship or personal and social relations rather than contractual
arrangements with formal guarantees. The informal sector forms part of the household
sector as household enterprises or, equivalently, unincorporated enterprises owned by
households.
Definitions used in India
The First Indian National Commission on Labour (1966-69) defined „unorganised
sector workforce‟ as –“those workers who have not been able to organize themselves
in pursuit of their common interest due to certain constraints like casual nature of
employment, ignorance and illiteracy, small and scattered size of establishments”.
The National Sample Survey Organization (NSSO), which has been conducting
surveys of un-organized enterprises at periodical intervals, generally adopted the
following criteria for the identification un-organized sector:
i. In the case of manufacturing industries, the enterprises not covered
under the Annual Survey of Industries (ASI) are taken to constitute the
un-organized sector.
ii. In the case of service industries, all enterprises, except those run by the
Government (Central, State and Local Body) and in the corporate
sector were regarded as un-organized.
The NSSO also conducted a separate informal sector survey in 1999-2000 and „all
non-agricultural enterprises, excluding those covered under the ASI, with type of
ownership as either proprietary or partnership‟ were treated as informal non-
agricultural enterprises for the purpose of the survey.
In the compilation of National Accounts, the term un-organized sector is used to
represent the residual enterprises, which are not included in the „organized sector‟.

4. 3
The coverage under „organizational sector‟, however, differed across different
segments of the economy depending on regular data availability from various
administrative sources.
The Directorate General of Employment and Training (DGET) considers all
establishments employing ten workers or more as organized sector, though
Employment Exchange (Compulsory Notification of Vacancies) Act, 1959‟, makes it
mandatory to submit employment returns only for those units ordinarily employing
twenty five or more persons.
Definition proposed by NCEUS
Informal Sector Worker
As per international definitions, informal sector enterprises are owned by individuals
or households that are not constituted as separate legal entities independent of their
owners. In the Indian context, the enterprises can be of ownership categories of (i)
proprietary (ii) partnership (iii) registered under Companies Act as Companies (iv)
co-operative societies registered under Societies Registration Act and (v) Government
or Public Sector Undertakings. Out of these ownership categories, the enterprises
operated on proprietary and partnership basis do not constitute as separate legal
entities independent of their owners ie the liabilities of the enterprise fall entirely on
the owners.
Another important characteristic in the international definition is that the employment
size has to be below a specific threshold to be determined according to national
circumstances. It has been seen by the Task Force that the appropriate employment
size in the context of India is nine workers1
.
Non-registration under specific forms of national legislation is another characteristic
which can be used for identifying informal enterprises as per international guidelines.
However, in the case of India, there is no unique form of registration which can be
used for such identification though there are several voluntary and mandatory
registration systems for specific segments of industrial units.
The non-maintenance of complete accounts that would permit a financial separation
of production activities of the enterprise is generally satisfied in the case of
proprietary and partnership enterprises employing less than ten workers as those
enterprises are not under any legal obligation to maintain separate accounts. In view
of the above, the following definition of unorganized/informal sector has been
recommended:
“The informal sector consists of all unincorporated private enterprises
owned by individuals or households engaged in the sale and
production of goods and services operated on a proprietary or
partnership basis and with less than ten total workers”.
The word enterprise in the above definition has the same meaning as defined in the
SNA 93 and refers to an institutional unit in its capacity as a producer of goods and
1
A detailed analysis has done by NCEUS on 55th
Round Survey of Informal Non-agricultural
Enterprises (1999-2000), 56th
Round Survey of Unorganised Manufacturing (2000-01), 57th
Round
Survey of Unorganised Service Sector (2001-02), Third All India Census of Small Scale Industries
(2002-03) and Fifth Economic Census (2005) by size of employment and found that about 99 percent
of workers employed in the enterprises working less than nine workers.

5. 4
services. An enterprise is classified as proprietary if an individual is its sole owner
and as partnership if there are two or more owners on a partnership basis with or
without formal registration. It excludes all corporate entities, registered co-operatives,
trusts and other legal entities.
Though the above definition does not make any distinction between agricultural and
non-agricultural enterprises, the concept of enterprise is so far being used in India
only in the context of non-agricultural sector. The use of such a restrictive meaning of
enterprise would lead to the exclusion of a large number of workers in the agricultural
sector, unless a corresponding unit of enterprise in agriculture is specified and used.
It is, therefore, recommended that each operational holding in the crop production,
plantation, forestry, animal husbandry and fishing activities may be considered as an
enterprise for the purpose of applying the definition of unorganized/informal sector.
In the absence of identification of operational holdings in agriculture as enterprises
and collection of the relevant details in the labour force surveys in India, it has not
been possible to apply the above definition of informal sector in the field of
agriculture so far. Nevertheless, the size of employment in the un-organized informal
sector and its distribution need to be estimated and as such all workers in the
agricultural sector except those in plantations have been regarded as informal sector
workers in agriculture. This approximation has been made on the basis of the
following assumptions:
i) Plantations are generally large in size and the workers in the
sector are protected under Plantations Labour Act, 1951;
ii) Organized farming is very rare in India and crop cultivation and
other agricultural activities are primarily carried out by private
households possessing small pieces of land or holdings.
Informal Worker
To estimate the contribution of Informal sector to gross domestic product the
definition of informal sector was included in the System of National Accounts (SNA),
1993. The definition is, therefore, in terms of characteristics of the enterprise rather
than in terms of the characteristics of the worker. Thus a large number of workers
with informal job status were excluded. Some of the reasons for the exclusion are.
(i) The persons engaged in very small-scale or causal self-employment
activities may not report in statistical surveys that they are self
employed, or employed at all, although their activity falls within the
enterprise-based definition.
(ii) Certain groups of persons such as out-workers, sub-contractors, free-
lancers or other workers whose activity is at the borderline between
self-employment and wage employment are likely to be missed or
wrongly classified.
(iii) An enterprise based definition of the informal sector will not be able to
capture all aspects of the increasing “informalisation” of employment,
leading to various forms of informal employment even in the formal
sector.
(iv) Persons employed in private households as domestic servants,
gardeners, etc. are likely to be left out in an enterprise based definition.

6. 5
The Employment relationship even in the so called organized sector is not formal in a
good percentage of cases and many workers working in the formal sector without any
protection and social security. At the same time, there are atleast a few employees in
the unorganised/ informal sector that enjoys formal employment relationship. The
National Commission for Enterprises in the Unorganized Sector (NCEUS) took note
of these aspects and decided to complement the definitions of unorganized/ informal
sector with a definition of informal employment.
“Informal workers consists of those working in the informal sector or
households, excluding regular workers with social security benefits
provided by the employers and the workers in the formal sector
without any employment and social security benefits provided by the
employers”
Magnitude of workforce engaged in the unorganised/informal sector
India is an emerging economy with 457.46 million workers in 2004-05. The size of
workforce was 396.76 million in 1999-2000.A large chunk of the workforce was
engaged in the informal sector. The estimated number of informal sector workers in
2004-05 was 394.90 million in India contributing 86 percent of total workers. Table 1
shows the distribution of informal and formal sector workers by sector and sex
between 1999-2000 and 2004-05. In rural areas the share of informal sector workers
in each population segment recorded more than 90 percent and the share of female
workers (94.50 percent) is more than male workers (90.34 percent) in 2004-05. In
1999-00 the situation was same for rural area but over the years the percentage share
declined in rural areas. Contrast to rural areas, in urban areas around 70 percent of
workers worked in the informal sector but between the study period the share of
informal workers in urban areas increased.
Table-1: Distribution of informal and formal sector workers by sector
and sex between 1999-2000 and 2004-05 (in million)
Sector Sex Informal Sector Formal Sector Total
1999-00 2004-05 1999-00 2004-05 1999-00 2004-05
Rural
Male 178.50 197.87 18.24 21.17 196.74 219.04
Female 98.63 117.21 5.39 6.82 104.02 124.03
Persons 277.13 315.08 23.63 27.99 300.75 343.07
Urban
Male 51.62 61.94 25.42 28.46 77.05 90.4
Female 13.89 17.88 5.07 6.12 18.96 24
Persons 65.51 79.82 30.50 34.58 96.01 114.4
Total
Male 230.12 259.81 43.66 49.63 273.78 309.44
Female 112.51 135.09 10.46 12.94 122.98 148.03
Persons 342.64 394.9 54.12 62.57 396.76 457.46
Source: Computed from NSSO 55th
(1999-2000) and 61st
(2004-05) Round Survey on
Employment-Unemployment.
Table 2 reports the average annual growth rate of workers by sector and sex in both
informal sector and formal sector. The growth rate of total formal sector workers
(2.94 percent) is little bit higher as compared to informal sector growth rate (2.88
percent). It is observed from the table that the growth rate of formal sector workers in
rural areas in all categories is higher than growth rate in informal sector workers but
the reverse happened in urban area. The growth rate of urban informal sector is higher
than formal sector workers. Highest growth rate recorded in the case of urban female
at 5.18 percent. In rural areas also the growth rate of female workers in informal

7. 6
sector is more than male workers. The growth rate of female workers is higher than
male workers in formal sector also. It is concluded from the table that the growth rate
of female workers is more than male workers but the growth is more in case of formal
sector than informal sector.
Table 2: Average Annual Growth Rate of workers by sector and
sex between 1999-2000 and 2004-05 (in percent)
Sector Sex Informal
Sector
Formal
Sector Total
Rural
Male 2.08 3.03 2.17
Female 3.51 4.82 3.58
Persons 2.60 3.45 2.67
Urban
Male 3.71 2.28 3.25
Female 5.18 3.82 4.83
Persons 4.03 2.54 3.57
Total
Male 2.46 2.60 2.48
Female 3.73 4.34 3.78
Persons 2.88 2.94 2.89
Source: Estimated from Table 1.
Table 3 gives the estimated number of informal sector workers and share of informal
sector workers to total workers by industry group. Agricultural sector absorb 60
percent of workforce in India in 1999-00 which came down to 57 percent in 2004-05.
The share of agriculture sector is more in informal sector workers; it is 68 percent and
64 percent for the respective periods. After agriculture, it is the service sector where
19 percent of informal sector workers engaged in 1999-00 and this figure increases to
21 percent in 2004-05. The share of industry sector in the informal sector workers
also increased from 13 to 15 percent in the same period. If we look by Industry group
after agriculture it is trade and manufacturing sector where a sizeable number of
informal sector workers engaged. Around three fourth of the trade sector workers are
in the profession of merchants & shopkeepers, wholesale & retail trade and salesmen,
shop assistants and related workers. The share of informal sector workers in the trade
sector was 93.64 percent in 1999-00 and it increase to 95.54 percent in 2004-05.
Whereas in manufacturing this share was 70.19 and 71.20 percent in the respective
years. Highest growth rate recorded in the sector household and extra activities (25.42
percent) between the study period. Other industry groups where the growth rate of
informal sector workers is higher than others are Real estate (10.25 percent), Finance
(10.00 percent) and Construction (8.77 percent).
Table 3: Estimated Number of Informal Sector Workers, Percentage share of
Informal Sector Workers to Total Workers and Average Annual Growth Rate
by Industry Group between 1999-2000 and 2004-05
Industry Group
Estimated number of
informal sector worker
(in million)
Share of informal
sector workers to total
(in percent
Growth
rate (%)
1999-00 2004-05 1999-00 2004-05
Agriculture 232.21 252.83 97.70 97.65 1.72
Mining 0.88 0.89 40.55 33.74 0.22
Manufacturing 30.92 39.71 70.19 71.20 5.13
Electricity 0.09 0.09 8.35 6.59 -1.99
construction 12.92 19.66 73.66 75.58 8.77
Trade 34.29 41.43 93.64 95.54 3.85

8. 7
Hotels 4.08 5.29 88.30 86.72 5.34
Transport 10.44 14.02 71.42 75.93 6.09
Finance 0.49 0.80 21.91 25.70 10.00
Real estate 2.02 3.29 75.66 70.74 10.25
Administration 0.80 0.08 7.66 0.90 -37.01
Education 2.29 3.07 27.04 26.88 6.04
Health 1.22 1.64 42.85 44.18 6.03
Community 8.47 7.40 86.82 88.20 -2.67
Household & Extra 1.51 4.70 81.58 98.72 25.42
Total 342.64 394.90 86.36 86.32 2.88
Source: ibid.
Tables 4 illustrate the distribution of estimated number of informal sector workers per
thousand population and share of informal sector workers to total workforce across
states. In Andhra Pradesh, Himachal Pradesh, Karnataka, Madhya Pradesh the
estimated number of informal sector workers per thousand population was highest in
descending order. But both in 1999-00 and 2004-05 the share informal sector worker
was highest in Bihar followed by Uttar Pradesh, Rajasthan and Orissa. The mentioned
four states are very poor in comparison to others states of India. The incidence of
poverty or the percentage of poor living below poverty line in these states much above
the national average. It seems there is a positive correlation between poverty and
informal sector. The estimated correlation coefficient between percentage of
population below poverty line and share of informal sector workers to total workers
by state is .47 in 2004-05. Between the study period the growth rate of informal sector
workers in these poor states is more than national average annual growth rate (2.88
percent) except Bihar (1.53 percent). There is no clear pattern among the developed
states in the share of informal sector workers. Except Gujarat in other developed
states i.e. Haryana, Maharashtra and Punjab the share of informal sector workers to
total workers increased between 1999-00 and 2004-05 whereas in Gujarat the share
decreased from 85.06 to 82.83 percent in the respective time period. In Kerala the
share of informal sector workers is the lowest among all states both in 1999-00 at
67.56 percent and it further declined to 63.40 percent in 2004-05. Highest growth rate
in informal sector workers is record in Assam (7.17 percent), Haryana (6.82 percent),
Other North Eastern states (5.83 percent) and Rajasthan (5.51 percent).
Table 4: Estimated Number of Informal Sector Workers per Thousand
Population, Percentage share of Informal Sector Workers to Total Workers and
Average Annual Growth Rate by State between 1999-2000 and 2004-05
State Estimated number of
informal sector worker
per thousand
population
Share of informal sector
workers to total (in
percent
Growth
rate (%)
1999-00 2004-05 1999-00 2004-05
Andhra Pradesh 420 443 88.45 88.28 1.01
Assam 267 326 76.70 84.41 7.17
Bihar* 313 315 93.71 93.59 1.53
Gujarat 380 386 85.06 82.83 2.32
Haryana 279 334 82.44 83.45 6.82
Himachal Pradesh 437 438 88.47 83.66 2.85
J&K 368 322 87.69 81.65 -2.87
Karnataka 378 424 84.51 86.58 2.88
Kerala 258 250 67.56 63.40 1.98

9. 8
Madhya Pradesh* 384 398 90.47 89.24 2.52
Maharashtra 344 380 81.51 82.00 3.05
Orissa 362 393 89.62 90.08 3.25
Punjab 331 355 85.60 85.23 3.68
Rajasthan 373 393 91.04 91.16 5.51
Tamil Nadu 381 391 81.85 80.76 0.39
Uttar Pradesh* 306 338 90.95 92.20 3.91
West Bengal 312 327 86.79 85.42 3.65
Other North Eastern states 314 346 85.13 83.72 5.83
Other states & UTs 197 210 60.39 60.85 1.46
Total 341 362 86.36 86.32 2.88
Note: Bihar include Jharkhand, Madhya Pradesh include Chhattisgarh and Uttar
Pradesh include Uttarakhand.
Source: ibid.
Magnitude of unorganised/informal Worker
The concept of Informal Worker is based on the personal characteristic of the worker
rather than enterprise. The estimated number of informal workers is more than that of
informal sector workers. In 2004-05, the estimated number of informal workers was
422.61 million and it was 361.74 million in 1999-00. Table 5 shows a cross tabulation
of informal sector workers and informal workers in 1999-2000 and 2004-05. More
than 99 percent of informal sector workers are informal workers but only 62.20
percent of formal sector workers are formal workers in 1999-00 and it further slide
down to 53.42 percent in 2004-05. It appears from the below table that a large number
of workers working in the formal sector by enterprise characteristics but there job is
informal in nature. They didn‟t have any social security, job security and other
benefits which the regular wage employees getting in the formal sector and over the
years the share of workers in this category increased from 20.46 million in 1999-00 to
29.14 million in 2004-05. This indicates that casualisation or the amount of
contractual labour increases in the formal sector which is a matter of great concern for
policy makers. Informal workers consist of 92.38 percent of total workers in India in
2004-05.
Table 5: Distribution of Workers by Type of Employment and Sector (Million)
Informal Workers Formal Workers Total Workers
1999-00 2004-05 1999-00 2004-05 1999-00 2004-05
Informal
Sector
Workers
341.28
(99.60)
393.47
(99.64)
1.36
(0.40)
1.43
(0.36)
342.64
(100)
394.90
(100)
Formal
Sector
Workers
20.46
(37.80)
29.14
(46.58)
33.67
(62.20)
33.42
(53.42)
54.12
(100)
62.57
(100)
Total
Workers
361.74
(91.17)
422.61
(92.38)
35.02
(8.83)
34.85
(7.46)
396.76
(100)
457.46
(100)
Note: Figures in bracket indicate percentages
Source: ibid.
Estimated number of Informal and formal workers by sector and sex in 1999-00 and
2004-05 are depicted in Table 6. Above 95 percent of rural workers are informal
workers. As per 2004-05 Employment-Unemployment survey 98.04 percent of female
workers are informal worker and it was 97.78 percent in 1999-00. In urban areas also

10. 9
the share of female informal workers is higher than male at 85.01 percent in 2004-05.
Rural sector contributes 78.23 percent of informal workers to total informal workers.
It was observed in the case of informal sector workers that the share of female
workers in the formal sector increase over the years but in case of informal workers
across all population segment the share of informal workers increased between 1999-
00 and 2004-05.
Table-6: Distribution of informal and formal workers by sector and sex between
1999-2000 and 2004-05 (in million)
Sector Sex Informal Worker Formal Worker Total
1999-00 2004-05 1999-00 2004-05 1999-00 2004-05
Rural
Male 186.17 209.01 10.57 10.03 196.74 219.04
Female 101.71 121.60 2.31 2.43 104.02 124.03
Persons 287.87 330.62 12.88 12.45 300.75 343.07
Urban
Male 58.33 71.60 18.72 18.80 77.05 90.40
Female 15.53 20.40 3.43 3.60 18.96 24.00
Persons 73.87 91.99 22.14 22.40 96.01 114.40
Total
Male 244.50 280.61 29.28 28.83 273.78 309.44
Female 117.24 142.00 5.74 6.03 122.98 148.03
Persons 361.74 422.61 35.02 34.85 396.76 457.46
Table 7 shows the average annual growth rate of workers in informal and formal
workers category. It is observed here that the growth rate of female workers both in
rural as well as in urban areas is greater than male workers growth rate and within the
female workers growth rate of urban female informal workers (5.60 percent) is more
than rural female (3.64 percent) between 1999-00 and 2004-05. In case of formal
workers the growth rate of male informal workers is negative. The absolute number of
male formal workers came down from 29.28 million in 1999-00 to 28.83 million in
2004-05. This negative growth is due to fall in formal employment in rural male
segment. Female workers in formal workers category increase by around 1 percent of
growth rate both in rural as well as urban areas.
Table 7: Average Annual Growth Rate of workers by sector and sex between
1999-2000 and 2004-05 (in percent)
Sector Sex Informal
Worker
Formal
Worker
Total
Rural
Male 2.34 -1.05 2.17
Female 3.64 0.99 3.58
Persons 2.81 -0.67 2.67
Urban
Male 4.18 0.09 3.25
Female 5.60 0.97 4.82
Persons 4.49 0.23 3.57
Total
Male 2.79 -0.31 2.48
Female 3.91 0.98 3.78
Persons 3.16 -0.10 2.89
Table 8 gives the estimated number of informal workers, percentage share of informal
workers to total workers and average annual growth rate of informal workers between
1999-00 and 2004-05. Around 61 percent of informal workers are from agricultural
sector and within the agriculture the share of informal sector to total workers is 98.89
percent in 2004-05. Household and extra activities industry group‟s share of informal
workers to total workers (99.23 percent in 2004-05) is more than agriculture but the

11. 10
size is quite less in comparison to other industry group. Next to agriculture other
industry groups whose share of informal workers to total workers is more than 90
percent are Trade (98.11 percent), Construction (97.33 percent), Hotels & restaurant
(95.02 percent) and community activities (94.99 percent) in 2004-05. In the informal
sector workers next to agriculture sector maximum number of workers worked in
Trade sector but in the case of informal workers manufacturing industry group came
after agricultural with 49.30 million and the 42.54 million in Trade in 2004-05. The
growth rate of informal workers by industry group shows that highest growth rate was
recoded at 22.08 percent in the household and extra activities industry groups between
1999-00 and 2004-05. Other industry groups where more than 10 percent growth rate
of informal workers taken place between the study period are Finance (14.15 percent),
Real estate (10.75 percent) and Education (10.32 percent). Significant growth rate of
informal sector recorded in Construction, Manufacturing, Hotel and Transport
industry groups.
Table 8: Estimated Number of Informal Workers, Percentage share of Informal
Workers to Total Workers and Average Annual Growth Rate by Industry
Group between 1999-2000 and 2004-05
Industry Group Estimated number of
informal worker (in
million)
Share of informal
workers to total (in
percent
Growth
rate (%)
1999-00 2004-05 1999-00 2004-05
Agriculture 234.79 256.07 98.79 98.89 1.75
Mining 1.56 1.78 71.75 67.39 2.68
Manufacturing 36.85 49.30 83.65 88.38 5.99
Electricity 0.21 0.24 18.75 18.72 2.74
construction 16.90 25.32 96.40 97.33 8.42
Trade 35.41 42.54 96.69 98.11 3.74
Hotels 4.35 5.80 94.30 95.02 5.89
Transport 11.44 15.28 78.30 82.70 5.95
Finance 0.63 1.21 27.80 39.24 14.15
Real estate 2.24 3.73 83.73 80.09 10.75
Administration 1.60 1.19 15.27 13.46 -5.75
Education 3.24 5.29 38.22 46.28 10.32
Health 1.50 2.18 52.51 58.80 7.79
Community 9.28 7.97 95.15 94.99 -3.01
Household & Extra 1.74 4.72 93.86 99.23 22.08
Total 361.74 422.61 91.17 92.38 3.16
Source: ibid.
State level analysis of informal workers depict in Table 9. In the poor states as stated
earlier in the discussion of informal sector workers the share of informal workers is
more than national average. Along with the poor state in the share of informal
workers in Andhra Pradesh (93.95 percent) is more than nation. Bihar has the highest
percentage of informal workers (96.46 percent) followed by Uttar Pradesh (95.53
percent), Rajasthan (95.17 percent), Madhya Pradesh (95.17 percent) and Orissa
(94.53) in 2004-05. The share of informal workers is low in Other states and UTs
(75.18 percent) followed by Kerala (81.27 percent). The growth rate of informal
workers between 1999-00 and 2004-05 is highest in Haryana (7.21 percent) followed
by Assam (6.30 percent) and other north eastern states (6.25 percent). Estimated
number of informal workers per thousand population in Himachal Pradesh was 451
and 472 in 1999-00 and 2004-05 respectively which is highest among all the states

12. 11
followed by Andhra Pradesh with 438 and 471 informal workers per thousand
population for the same period.
Table 9: Estimated Number of Informal Workers per Thousand Population,
Percentage share of Informal Workers to Total Workers and Average Annual
Growth Rate by State between 1999-2000 and 2004-05
State Estimated number of
informal worker per
thousand population
Share of informal
workers to total (in
percent
Growth
rate (%)
1999-00 2004-05 1999-00 2004-05
Andhra Pradesh 438 471 92.23 93.95 1.42
Assam 297 349 85.36 90.19 6.30
Bihar* 319 324 95.45 96.46 1.77
Gujarat 408 426 91.44 91.59 2.90
Haryana 296 361 87.51 90.20 7.21
Himachal Pradesh 451 472 91.22 90.20 3.77
J&K 374 349 89.14 88.49 -1.62
Karnataka 410 450 91.51 91.90 2.47
Kerala 305 321 80.03 81.27 3.60
Madhya Pradesh* 401 423 94.36 94.93 2.92
Maharashtra 368 415 87.25 89.61 3.47
Orissa 378 412 93.46 94.53 3.38
Punjab 349 378 90.26 90.88 3.91
Rajasthan 385 411 93.88 95.17 5.77
Tamil Nadu 416 435 89.27 89.89 0.80
Uttar Pradesh* 318 351 94.30 95.53 3.90
West Bengal 326 349 90.75 91.19 4.08
Other North Eastern states 325 365 87.97 88.26 6.25
Other states & UTs 233 260 71.31 75.18 2.38
Total 360 388 91.17 92.38 3.16
Note: Bihar include Jharkhand, Madhya Pradesh include Chhattisgarh and Uttar
Pradesh include Uttarakhand.
Source: ibid.
Conclusions
Informal sector accounts for a sizeable number of workers in India across different
industry groups and states. The concept of informal sector and informal workers
proposed by NCEUS is more appropriate in the context of Indian statistical system
and it better compatible with international definition of informal sector. The estimated
number of informal sector workers in 2004-05 was 394.90 million in India
contributing 86 percent of total workers. Over the year the proportion of rural
informal sector workers decreased and the opposite happened in urban areas. It is
observed between the study period of 1999-00 to 2004-05 that the growth rate of
formal sector workers in rural areas in all categories is higher than growth rate in
informal sector workers but the reverse happened in urban area. The growth rate of
urban informal sector is higher than formal sector workers. The proportion of
informal sector workers in the agriculture sector declined over the years but in
industry and services sector the proportion of informal sector workers increased
between 1999-2000 and 2004-05. There is positive and significant correlation
between inform sector employment and the incidence of poverty in the states. The
percentage share of informal sector workers in the poor states is more than developed
states.

13. 12
The definition of informal sector workers is more about the characteristics of the
enterprise rather than the characteristics of the worker. The concept of Informal
Worker is based on the personal characteristic of the worker rather than enterprise.
Informal workers consist of 92.38 percent of total workers in India in 2004-05.
Around half of the formal sector workers are informal workers. This indicates that
casualisation or the amount of contractual labour increases in the formal sector which
is a matter of great concern for policy makers. Since the formal sector unable absorb
the vast labour force of India the policy makers should think to bring the workers in
the informal segment to the mainstream.
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